The country’s apex auditor has reportedly found gaps in books of RIL and books of related parties in several transactions

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New Delhi: The government auditor Comptroller and Auditor General (CAG) of India has conducted an integrated audit of Reliance Industries Ltd (RIL) as well as a few of its group entities and unearthed several tax discrepancies. The CAG red flagged practices followed by the company to prima facie lower its tax burden and pulled up the Income Tax Department for not being vigilant and efficient, reliable sources told ET Now on condition of anonymity.

The findings are likely to be included in the CAG’s FY 19 audit report.

CAG is believed to have flagged off many such cases, such as a Rs 8,304 crore investment by Reliance Universal Ventures Ltd to buy equity shares of Reliance Retail. The audit reveals how through a web of companies—including Reliance Fresh, RelCorp, Reliance Industrial Investment Ltd—these very shares were purchased and swapped multiple times over to allegedly create losses. Sources say the CAG has pulled up the Income Tax Department for allowing the losses to be carried forward, and also for not questioning the adverse share swap ratios that ultimately led to Reliance Universal Ventures Ltd booking a loss of Rs 3,321.60 crore. A source in the CAG describes these transactions as "circular" and carried out "to rotate money under the garb of genuine business deals."

RIL using paper companied to lower tax burden?
The audit also unearthed as many as 350 companies and LLPs all registered at the same address, and sources say the CAG is viewing them as "paper companies". The CAG does not know the entire web of such companies, or how many exist. It also does not know their business, whether they file returns regularly and what their income is. These 350 "paper companies" were discovered when the CAG decided to cross verify records randomly of four shareholders each with more than 1 per cent stake in RIL.

Dividends disproportionate to investment
Two such LLPs with the same address in Nariman Point, Mumbai were selected for audit verification. Their names are Ajitesh Enterprises and Badri Commercials, and both these entities hold more than 1 per cent in RIL.They both earned Rs 102.14 crore each as dividend in AY2012-13, and that is disproportionate to the investments reflected in their balance sheets. Badri Commercials investment was Rs 0.11 crore and Ajitesh Enterprises investment was Rs 0.09 crore each. Sources say the CAG is of the view that these LLPs should have invested at least Rs 125 crore to earn the Rs 102.14 crore dividend, and questions the I-T department for not being vigilant enough.

Discrepancies in books of RIL & related parties
The country’s apex auditor has reportedly found gaps in books of RIL and books of related parties in several transactions carried out via loans, advances, other income, sale & purchase of goods, services and donations. For instance, in AY2012-13 it found that RIL booked a Rs 2,625 crore loan to Reliance Industries & Investment Ltd, but the latter booked it as Rs 2,113 crore and that is a discrepancy of Rs 512 crore between the two books. At least eight transactions with a discrepancy of Rs 733.91 crore were found between RIL and other related parties, people aware of the development told ET Now. The CAG is believed to have opined that the I-T department did not cross verify high value deals of RIL and other related parties.

Incorrect allowance of deduction under Section 80IA
The CAG is believed to have found a Rs 4077.35 crore tax deduction of being "not in order." This was spread over three years, that is AY2012-2015 and given to Reliance Ports & Terminals for jetties constructed in agreement with Gujarat Maritime Board, a state-owned undertaking. The audit scrutiny alleges that while the ownership of the jetties is with Gujarat Maritime Board, the Reliance company was allowed to use it at a concessional rate. The CAG from the documents on record is believed to have concluded that the jetties were primarily constructed for the Reliance company, and thus it did not fulfill the condition of infrastructure development for larger public use.

Before doing this story, ET Now sent a detailed questionnaire to RIL.

Here is RIL's response to ET Now:
“We are not privy to the CAG report on the Income Tax Assessments made on RIL and its group companies and hence are not in a position to comment on its contents. Please note that RIL pays its taxes in accordance with law and is one of the highest tax payers in private sector in India. RIL’s accounts are audited and there cannot be any difference in the recording of transactions among RIL and its group companies. If the facts stated in your query are correct, there seems to be a misunderstanding due to lack of full details on record with the tax department. The tax reliefs claimed by the group are always as allowed in accordance with law and as intended by the legislature. RIL never deploys any scheme to avoid tax burden. Hope this clarifies the position.”

Exclusive: CAG finds tax discrepancies at RIL, pulls up I-T departmentDescription:The country’s apex auditor has reportedly found gaps in books of RIL and books of related parties in several transactionsTimes Now